When the General Assembly gathered a year ago, Jay Speer and other consumer advocates reiterated their call for abolishing payday lending in Virginia.
This year, the executive director of the Virginia Poverty Law Center and other critics of the short-term loans have modified their opposition. They’ve endorsed bills that would cap the annual rate for payday loans at 36 percent, the ceiling in place for other small consumer loans made in Virginia.
At the urging of Del. Terry Kilgore , R-Gate City and chair of the House Commerce and Labor Committee, industry representatives and critics of payday lending plan to gather in Richmond today to discuss possible compromises in their legislative proposals.
Dan Drummond, a lobbyist for the Washington -based payday-lending organization Community Financial Services Association , expressed hope that the two sides may find some common ground. “We don’t like to keep fighting this battle year after year,” he said.
Still, payday lenders remain vehemently opposed to rolling back the existing ceiling, which amounts to an annual rate of 390 percent for a typical two-week loan.
With a rate of 36 percent, lenders couldn’t cover their overhead, let alone make a profit from payday loans, they say. “They put that cap into effect in Oregon, and lenders left,” Drummond said.
At least 19 bills to modify or abolish Virginia’s Payday Loan Act have been introduced during the current session of the General Assembly. Some call for an interest-rate cap. Some would impose more stringent limits on the ways lenders can collect overdue loans.
One proposal, sponsored by Del. Bob Marshall, R-Manassas, would allow municipalities to impose a maximum annual interest rate that lenders could charge and limit the number of loans that could be made to a borrower.
Virginia legalized payday lending six years ago after some lenders used a legal technicality to evade the state’s interest-rate ceiling for small loans.
Legalization brought with it modest oversight by state regulators and opened the doors to a torrent of lending, especially in Hampton Roads.
Payday lenders can make available as much as $500, usually for two weeks, to individuals who have a job and a bank account. Borrowers provide the lender with a post-dated check for the amount of the loan, plus the interest charged.
The debate over payday lending has less to do with specific interest rates and more to do with the borrowers who find themselves trapped by a rapid build up of interest charges. The industry insists that the number of borrowers who get in over their heads with payday-lending debt remains slight.
“It’s not our goal to put people in a position where they can’t pay us back,” said Jamie Fulmer , a spokesman for the Advance America Cash Advance chain of payday-lending stores.
Advance America and other lenders have promoted their product as a service for financial emergencies and a less-costly alternative to bouncing a check. The amount of payday lending in Virginia – $1.3 billion in 2006 – is evidence, they contend, that consumers want access to convenient, short-term credit.
Speer and other critics have responded by citing the increase in individuals who have become heavy users of the loans. The number of Virginia residents taking out payday loans fell almost 3 percent in 2006 to 433,537, according to the Bureau of Financial Institution s’ latest annual report on payday lending.
The number of borrowers using 13 or more loans, however, climbed almost 7 percent to 96,831.
“What we want, more than anything, is to deal with the cycle of debt” that traps many borrowers, said Mark Hubbard, a lobbyist with McGuireWoods Consulting. Hubbard is assisting the Center for Responsible Lending, a Durham, N.C. -based organization that has been especially critical of the industry’s practices.
Del. Mark Sickles, D-Fairfax, said he sees a role for payday loans, in part, because “our typical financial institution in Virginia doesn’t make $300 loans.”
Rather than endorse the campaign for a sharply lower interest rate, Sickles introduced a bill, HB 1103, that would limit the amount of a loan to a percent of the borrower’s gross monthly income.
His bill also would allow lenders to gain access to a borrower’s bank account through electronic debit or wire transfer .
Sickles’ package also calls for adopting an online data base to verify that lenders and borrowers abide by the prohibition against rolling over an existing loan.
In the midst of their lobbying in the Capitol this week, lenders and critics said they agreed on one issue: Allowing regulation at the municipal level isn’t appropriate.
“This is an issue that has to be addressed at the state level. It’s a statewide problem,” said Speer of the Virginia Poverty Law Center.
Tom Shean, (757) 446-2379, tom.shean@pilotonline.com
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Leave it alone
Why can't we just leave payday lenders alone! Is this the most important thing we can be arguing about? Isn't there still a war going on? This is stupid. If the stores are still in business, then people are paying the fee that they are charging. If people are getting stuck in debt because of payday loans, then they are stuck in debt because of other reasons too. A $300 loan is not going to put people into poverty, a $300 loan on top of piles of other debt is. Why don't we help the people who are in debt and educate them so that they can get out from under it. And stop blaming the payday lenders for something that is not their fault. Here is an article that shows that payday loan stores benefit communities:
Payday lenders are the perfect target for politicians that want to seem compassionate. After all, a $15 fee on a two-week $100 loan amounts to an APR of 390% if the loan is rolled over for a year (accruing $15 every two weeks). What could be more evil than charging poor people 390% interest, right?
A recent study by the Federal Reserve Bank of New York suggests otherwise. As reported in the March issue of Reason Magazine, the study found that the citizens of two states where
There have been many
There have been many arguments against payday lending and the payday loan industry but the reasons are always the same. Consumer protection is necessary but consumer decision should never be dictated by legislation. Numerous steps have been taken by industry leaders and decision makers to make the payday loan product more consumer-friendly. Banks charge what many may consider to be outrageous fees for their services and account overdrafts. Therefore, the argument of usurious interest rates can be applied to various industries.
Leave it alone
If there are more payday loan stores than McDonalds, then obviously
people support payday loans. The fact that there are so many payday stores is evidence that the demand and need is huge. This is a testament to the fantastic product and service that they offer. I use payday loans on occasion to help me through the month. I get paid monthly, and sometimes, I just need a $100 or $200 to tide me over. It costs me $17 for a $100. I have no idea what the APR is; I don't care. I know if I bounce a check it will cost me $35 to my bank and another $25 to the grocery store where I bounce a check. I don't know what that APR is either, and I don't care. I don't think of the $17 as an interest rate. It is a one time fee that I am happy to pay in order to make it through the month and well worth it. When I first started doing payday loans, there were a couple of forms. Now, there are all kinds of forms. I have to certify that I'm not a terrorist or soldier. I have to prove how much money I make, including providing my pay stub. And, the store has to provide me copies of all of these forms. I'm not saying payday loans are cheap. They are not. But, payday loans are the best alterna
Payday Lending
As a representative of the payday lending industry, I believe it is critical for people to understand that prohibiting payday lending in Virginia would only force consumers to use the other, more costly short-term credit products available, such as overdraft protection, late fees on credit cards and other bill payments and off-shore Internet lending.
In Georgia and North Carolina, where payday lending was also banned, that the Federal Reserve Bank in New York found that bounced checks, personal bankruptcies and complaints about debt collectors jumped significantly when consumers no longer had the payday loan option.
In addition, no one is offering Virginians any viable payday alternatives. To date, almost all of the attempts to create payday loan alternatives have either been charity-based, required government subsidies, unavailable to the general public, unprofitable or unsustainable.
I hope Virginian legislators will look carefully at the serious reforms instituted by payday lenders to protect our customer and ask themselves if banning our industry without providing people with any alternatives to short term credit is really the responsible thing to do.
Ten bucks says...
I don't gamble but I'll bet the poster below doesn't use payday check services as a service per se, but a means of income. Kinda' deep for a payday loan frequenter wouldn't you say?
Can't make $ with 36% interest?
These vultures are only praying on those that have no where else to turn, but in the long run it costs all of us more money. Look at what has happened to the housing market. Mortgage companies and creditors have for years allowed people to borrow more than they should have, and we are all paying that cost. Bankruptcies and foreclosures are up and our economy is in a terrible mess. The number of people living paycheck to paycheck is growing and this leaves more people--families that are in need of government assistance. Whether it is for foodstamps, medical care, emergency housing, it doesn't matter. The fact is if we don't make laws that are fair for all instead of legalized loansharking, then we are no better than the companies charging over 300% APR.
The Problem is
That these types of loans create a never ending cycle for the poorest of Virginians. Folks that are just getting back on their feet fall prey to these businesses, and can never get straightened out. All of the local agencies here that specialize in helping the homeless have quantitative data that points to PAYDAY loans as being the number one thing that keeps the poor from getting ahead.
Is there a free marketplace or not?
Our freedom to choose how, when, where and with whom we do business is being encroached upon again. What Constitutional right does the government have to decide whom I can borrow money from and at what rate? The State is not supposed to be our nanny!